How to Start a Nonprofit Organization

Knowing you want to give back in some way and actually knowing how to start a nonprofit organization are two very different things. Many people do what they can on their own, but there comes a time when it just makes sense to create an official nonprofit so that others can join you in helping those who need it. It requires time, and growing the nonprofit after you have established it legally can take many years of hard work.

Determine Your Purpose

The very first step in creating a nonprofit is to decide what you will be doing. Who or what will you be helping? Is there anyone already doing this? It can be very difficult to get funding if you are doing the exact same thing as another nonprofit in your area. That doesn’t mean you shouldn’t start a similar organization, but make sure yours is unique and improves upon the services offered by others.

It’s also a good idea to find demographic information for your area of interest. You’ll need to convince donors that this is a worthy cause, and it helps to have statistics to back you up on that.

Once you have your purpose, sit down to write up your mission statement. This should include your organization’s purpose, who it serves and how it will help this group. Essentially, if someone has never heard of your nonprofit before, they should be able to read your mission statement and understand exactly what you are about.

Get the Basics Set Up

Just like any for-profit endeavor, a nonprofit organization requires a plan. Taking the time to work up a business plan now will save you time and hassle in the long run. It’s far easier to stay on track when you have a full plan in place, plus it’s very helpful when fundraising.

You will also need a board of directors in most cases. While it’s possible to run a nonprofit without one, having others you will be accountable to and to handle many of the issues that arise with running an organization can help. Your board will take on the legal responsibilities required to run the organization.

Incorporate and File Your Business Paperwork

Your nonprofit organization may be one of three types of organizations.

Trust: A trust requires specific language in the legal documents and is created under state law, which will vary, depending on where you are setting up your organization. In this type of organization, one person holds the title of the organization and is required to manage it for the benefit of the chosen party.

Corporation: A corporation is a group of people or a company that has filed to operate legally as a single person or entity. It is recognized as a single entity by law. Again, this type of organization is filed under state law, so the exact requirements will depend on where you are.

Association: When a group of people get together to work toward a single purpose, this is called an association. In order to qualify as a nonprofit, the association must have the correct paperwork signed by a minimum of two people in the group. The actual regulations will depend on the law of the state where you are forming the organization.

Incorporating your organization is usually the recommended method. This provides a specific structure for the nonprofit, and it also fosters trust among donors. As a corporation, the nonprofit limits how much the board of directors is liable for should things go wrong. It’s also simpler to deal with the IRS when you have corporate policies in place.

File for Tax-Exempt Status

With everything else in place, you are now ready to apply for your 501(C)(3) status. This will require filing the correct paperwork with the IRS. There is a fee to be paid, and you’ll need to pay an accountant if you plan to file through one.

Tax-exempt status may take as long as a year to complete, but it is often done far sooner and depends greatly on how well the forms have been filled out. Upon being granted tax-exempt status, you’ll be required to file annual reports with the IRS. The exact forms used depend on how many funds you’ve received in a year, and the information in them is a matter of public record.

Stay on Track

It may seem like the hardest part is getting your tax-exempt status, but knowing how to start a nonprofit organization goes beyond simply filing the correct paperwork. Now you will need to really get to work.

Every nonprofit will need to report annually, and it’s essential that you register with your state’s Attorney General or the part of the government that manages charitable organizations in your state. The really hard work, however, is bringing in the funds to keep your nonprofit going.

Fundraising will be an ongoing part of managing your charitable organization. Without funds coming in, the organization won’t be able to fulfill its duties. This means that fundraising is also one of the most important aspects of managing the project (see: fundraising ideas). Your business plan should help you keep on top of this and allow you to budget effectively as you get off the ground.

Now that you know how to start a nonprofit, it’s time to work on the paperwork. With a little dedication and planning, your project can be off the ground within a few months.

Six out of every ten donors will stop giving to your organization next year but you can retain more of your donors with the right fundraising strategy. DonorPerfect created this free Monthly Giving Starter Kit to help you retain more donors and raise more money, year after year.

You may also like

Nonprofit organizations typically collect donations for specific causes. Once a year, however, a message is sent out to all donors requesting funds for annual operations. There are plenty of annual appeal letter examples online that can help you...

If you’ve ever wondered what is a donor-advised fund’s benefits – or even what the term means at all – you’ll be happy to know that it’s simply another tool to increase donations. In fact, this relatively new...

When someone asks about the best practices for nonprofit reporting, many assume they’re simply talking about taxes. In reality, tax law is pretty straightforward. The real complexity comes in relation to generating data reports and putting...

Sponsored Resource

Nonprofit Expert

Nonprofit Expert provides free resources for nonprofits of all types and sizes! Providing tools, guides, and advice to nonprofits since 1998. DonorPerfect is proud to sponsor this information resource for the nonprofit community.